Following Russia’s invasion of Ukraine, law enforcement in the United States, Europe, and other jurisdictions tried to seize luxury yachts owned by Russian oligarchs. But they quickly discovered a problem: Yacht ownership is extremely difficult to confirm since most are registered to shell corporations that allow wealthy people to disguise their identities.
These practices not only make it harder to effectively use sanctions to punish Russia, but they also disrupt the lives of ordinary people in areas philanthropy works every day to address.
Consider, for example, the impact on affordable housing of money-laundering schemes that allow buyers who pay cash for expensive real estate to shield both their identity and where the money comes from. This practice has contributed to skyrocketing housing costs in many areas of the United States and made it much harder for first-time and lower-income buyers to enter the market.
In developing countries with abundant natural resources, wealthy individuals with political connections hide their identities, often through shell companies, as they engage in corrupt and illegal deals to extract oil, gas, and minerals. The estimated $1 trillion lost every year as a result of these deals could instead go toward public services in areas such as health, education, and economic opportunity. Opaque financial systems are also a root cause of many social ills, including facilitating drug and arms trafficking, and making it easier to finance terrorism and other illegal activities.
Too often philanthropy focuses on the symptoms of poor governance, corruption, and broken financial systems rather than the underlying causes. While development and humanitarian aid are important, grant makers need to look beyond these traditional areas of support.
Dozens of nonprofits are engaged in important work to promote financial transparency, but they need more philanthropic investment to have a sustainable impact. If there was ever a moment for philanthropy to expand its engagement in this area, it’s now. The Russian invasion of Ukraine has focused new attention on the problem of dirty money and the weaknesses in financial systems across the globe. Political leaders are looking for answers, and philanthropy can provide the funding nonprofits need to uncover corruption and advocate for lasting change. Here are four ways grant makers can make a difference:
Help close legal loopholes that allow kleptocrats to hide their assets. The challenge of locating Russian oligarchs’ assets shows why stronger financial transparency laws are urgently needed. Nonprofits such as Transparency International, which leads a global movement to fight corruption, and Tax Justice Network, a research hub for reforming tax systems, quickly responded to the invasion of Ukraine by calling on governments to fast-track anticorruption measures. They issued appeals to policy makers to, among other things, increase the transparency of luxury-goods ownership and establish a system for reporting and disclosing information about the real owners of yachts and private jets.
As more countries launch efforts to hold Russian oligarchs accountable, including the Justice Department’s new Task Force KleptoCapture, those of us who have long advocated for legal changes to the financial system finally have an opportunity to see those efforts come to fruition. Philanthropy can play an important role by funding advocacy efforts and ensuring that these issues stay at the center of policy agendas.
Support effective enforcement of existing financial transparency laws and policies. Plenty of laws are on the books that should help rein in dirty money, but many are poorly enforced, often because relevant law-enforcement agencies lack resources.
Groups such as the Financial Accountability and Corporate Transparency Coalition, an alliance of more than 100 state, national, and international organizations, began calling attention to the problem before the Ukraine crisis. Last year, the organization’s advocacy efforts prompted a bipartisan group of 38 members of Congress to demand increased funding for the U.S. Treasury Department’s Financial Crimes Enforcement Network, which is tasked with combating money laundering and other illicit uses of the financial system. Now, the coalition is pressing Congress for emergency funding to provide the agency with the resources it needs to enforce sanctions against Russian oligarchs.
Philanthropic investments focused on enforcing financial-transparency laws can have substantial returns. The United Nations estimates that money laundering costs the global economy as much as $2 trillion a year.
Coordinate philanthropic efforts on a global scale, not just in individual jurisdictions. Today’s financial system is truly global, with dirty money flowing to the weakest link. This means that measures undertaken in the United States need to align with those taken in other countries.
But such coordination does not happen automatically. It requires the ongoing support of groups such as the Financial Transparency Coalition, which coordinates research and advocacy across the globe. Its members, including the nonprofits Latindadd and the Pan African Lawyers Union, bring the interests of developing countries to the center of these efforts. Similarly, Open Government Partnership brings together government and civil-society organizations from more than 70 countries to commit to and track what’s happening, including publishing data about the owners of expensive properties and other assets.
Donor collaboratives are also an effective tool for pooling resources to address this complex global problem. The Transparency and Accountability Initiative, a donor collaborative that Michael leads, has granted approximately $35 million since 2013 to organizations advocating explicitly for financial transparency. This support has helped bring about major policy wins in eight jurisdictions worldwide, including the passage last year of the Corporate Transparency Act, which requires the creation of a federal register in the United States to track true corporate owners.
Support continuing efforts to uncover corruption in the financial system. Governments are often reticent to support watchdog and investigative media efforts to expose illicit activity. But the impact of such work is undeniable — and philanthropic support is critical. The best known recent example is the Panama Papers, coordinated by the International Consortium of Investigative Journalists. It exposed financial corruption worldwide, prompted street protests, and toppled governments. The fallout of the 2016 investigation continues to this day.
More recently, an investigation managed by the Organized Crime and Corruption Reporting Project revealed Swiss bank dealings with Russian oligarchs, including providing loans for their yachts. Such work, however, is often done on a shoestring and at significant personal risk. Russian investigative journalist Roman Anin was harassed by Russian authorities after he wrote about the connection between one oligarch and his yacht.
Since the invasion of Ukraine, independent media in Russia, which has played an important role in exposing financial corruption, has been forced to leave the country or go underground. These news organizations have also faced extreme financial struggles. For example, international sanctions have made it impossible for the Meduza Project, a Russian-language independent media organization now working out of Latvia, to collect reader donations that supported its operations. It has issued a plea for funding from Western sources so it can continue its work.
Through coordinated strategies, nonprofit advocacy and research organizations, independent media, and the donors who support them will not only help sanction Vladimir Putin and his cronies, but they will also fix a broken system that for too long has fueled corruption around the world. It’s time to put an end to the opaque financial structures that both facilitate illicit activity and undermine progress in so many areas philanthropy cares about.
